If you’re looking for a fantastic deal on real estate, you might be considering buying real estate at an auction like many rental property investors. But before your first auction, there are a lot of things you should know. Buying income properties at auction is far more dangerous than purchasing them through different approaches. Even though having solid information and a strategy can help reduce some of that risk, real estate auctions will never be fit for the hesitant – or unwilling to take the risk – investor. Those comfortable with some risk continue reading to discover the fundamentals of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The primary factor to understand before buying an income property at auction is that the procedures incorporate risks and benefits. Even though houses sold at auction are estimated below market value, numerous are in poor condition or have significant problems requiring extensive repairs. You may only allowed to inspect the property after you buy, so this is one risk that may be difficult to mitigate.
Other risks of buying at auction include the potential for impulsive overbidding, facing potential delays after purchase while the property is processed by multiple agencies, state or country redemption periods, and so forth.
However, one great place to find real bargains on rental real estate is at auctions. When you buy a home at a considerable discount, you can increase your cash flows and overall return on investment. One more benefit is that you can take ownership of the property quickly. In numerous situations, auctions can transfer title to a home within 30 days, enabling you to begin planning for your first renter instantly. In other words, compared to a standard sale, your property might begin generating rental income immediately.
How Real Estate Auctions Work
Finding real estate auctions is the first step in the process of buying a property at an auction. One way to accomplish this is by searching online auction websites or databases or working with a real estate agent specializing in auctions. After you’ve found a potential property, the next thing to do is research a potential property as much as you can. Make sure you perform a thorough comparative market analysis and examine the property’s potential as a rental home. Preferably, take a tour or arrange an inspection of the property. If that isn’t feasible (which it usually isn’t), you may drive by and take a look inside the windows. It would be great if you performed your research. Examine the property for any occupants, liens, or other possible issues that may create roadblocks to ownership.
To bid competitively at an auction, it is crucial to have lots of cash on hand and financing arranged before you place a bid. On many occasions, to buy a property at auction, you will need at least 10% of the selling price for a deposit, the ability to pay the remaining balance immediately (or within a matter of days, in some cases), and cash for administrative fees, survey costs, and insurance. Furthermore, there are different types of auctions, so be sure to systematically review all the auction rules and be ready to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, you must register and provide a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, aim to attend approximately one hour in advance to register and obtain your official bidding card, which you will use to place a bid at the auction. If the auction is online, you’ll need to log in to the auction website and place a bid. Once the bidding begins, you need to be aware of exactly how much you can offer before the property loses its bargain. If you can avoid a bidding war, your risk of paying too much will be greatly minimized.
In just a few minutes, you will determine if you won your auction or not. If you don’t win, you will get a deposit refund. However, if you prevail, you might have to pay for the property in full immediately after the sale. Some auctions allow you to bring cash or money order to make your immediate payment. Some will allow you to submit the necessary monies throughout the course of the following day or several days. Failure to accomplish that will lead to losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so completing payment as requested is critical. Then, even though you won the property at auction, you will still go through escrow and closing, just as you would when buying any other property.
Expanding your investment portfolio – whether via auctions or any other methods – may be demanding but rewarding process. Real Property Management MetroWest-Worcester provides market evaluations, and advice on potential real estate purchases in Worcester and surrounding areas. Contact us online or call at 508-329-6000.
Originally Published on Apr 2, 2021
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